Federal Judge Denies Kalshi Injunction in New York Case

Judge rules that what Kalshi is offering is sports betting

In her ruling, Judge Torres took apart the standard argument put forth by prediction market sites like Kalshi. They continue insisting that sports-event contracts are derivative swaps that are under federal regulation by the Commodities Futures Trading Commission (CFTC). They are not sports betting at all. Prominent gambling attorney Daniel Wallach reported on the judge's ruling.

"Kalshi argues that it has demonstrated a likelihood of success on the preemption issue that its sports-event contracts are exclusively regulated by the CFTC," Judge Torres wrote in her ruling. "Defendants contend that Kalshi cannot show a likelihood of success on the merits because sports-event contracts do not fall within CFTC regulation and, therefore, may be regulated by New York law."

Judge Torres came down firmly on the side of the New York gambling regulators. "For the reasons explained . . . the court finds that the New York gambling laws as applied to Kalshi's sports-event contracts are not preempted by the CEA and Kalshi has not, therefore, made a clear or substantial showing that it is likely to succeed on the merits."

This ruling says federal regulators do not supersede state regulations

Judge Torres also put a pin in another of the standard arguments put forth by prediction market sites and the CFTC. Since they are under federal regulation, state laws do not apply. A state regulator cannot supersede a federal regulator.

On the contrary, Judge Torres ruled. Yes, they can.

"When addressing the questions of express or implied pre-emption, we begin our analysis with the assumption that the historic police powers of the States [are] not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress," Judge Torres wrote. "That assumption applies with particular force when Congress has legislated in a field traditionally occupied by the States.

"The scope of laws regulating gambling and lotteries is clearly a matter of predominantly state concern."

How will this ruling impact prediction market court cases in other states?

The real worry from the Kalshi viewpoint in this ruling by Judge Torres is the precedent that it is setting. She's clearly stating her belief that sports-event contracts are sports betting. Her ruling is that state gambling commissions have every legal right to enforce regulation on prediction markets.

"Although Section 2 of the CEA grants the CFTC 'exclusive jurisdiction' with respect to 'transactions involving swaps' on a DCM, this grant is not without limits," Judge Torres wrote. "Section 2 specifies that 'nothing contained in the section shall . . . supersede or limit the jurisdiction at any time conferred on . . . other regulatory authorities under the laws of the United States or of any state.'

"This provision evinces Congress' intent to leave room for states to regulate certain activities that may have otherwise been covered by the CEA."